Alaska Senate panel votes for full dividend and seeks to lock up $12 billion in Permanent Fund earnings

JUNEAU — The Alaska Senate Finance Committee voted unanimously Friday to appropriate $1.944 billion for this year’s Permanent Fund dividend, enough for a dividend of $3,070 per person based on last year’s 633,134 recipients.

The amount is not final; it is subject to approval by a vote of the full Alaska Senate and Alaska House of Representatives, which did not include a dividend amount in its budget proposal. It nevertheless sets a negotiating position in line with Gov. Mike Dunleavy, who has insisted that the dividend be paid in “full” using the traditional formula in state law.

“This is a moving, fluid negotiation. We put in the extreme gutters: Zero and $3,000. We can negotiate now in conference committee,” said Sen. Natasha von Imhof, R-Anchorage, referring to the dividend amounts proposed by the House and Senate, respectively.

In a prepared statement emailed to reporters Friday afternoon, Dunleavy wrote, "I want to thank the Senate Finance Committee for putting a $3,000 PFD in the budget — in line with with the decades-old statutory formula. I hope the full Senate concurs with this action and the House follows suit to provide a full PFD to Alaskans.”

The state does not have enough revenue to pay both the full dividend and the state operating budgets proposed by the House and Senate. If a full dividend advances, lawmakers would have to make up the difference, $1.2 billion, from either the Constitutional Budget Reserve or the Alaska Permanent Fund’s earnings reserve.

Choosing the former requires a politically difficult three-quarters vote of the House and a three-quarters vote of the Senate. Choosing the latter means violating a Permanent Fund sustainability law passed by lawmakers last year. Under that law, spending from the earnings reserve is to be limited to no more than 5.25 percent of an average rolling value. If lawmakers go above that limit, they increase the risk of spending more than the Permanent Fund’s investments can earn.

“It is in fact a game-changer if the Legislature or one body of the Legislature indicates a willingness to overspend the Permanent Fund,” said Rep. Jonathan Kreiss-Tomkins, D-Sitka.

In a brief prepared statement, Speaker of the House Bryce Edgmon, I-Dillingham, said of the House majority: “We continue to support our primary objective of fiscal discipline, founded on the idea of a sustainable budget that protects essential services without dipping into savings.”

Sen. Peter Micciche, R-Soldotna and a member of the finance committee, said in his view, breaking the law on sustainability is preferable to breaking the law that has traditionally set the amount of the dividend.

“I think you have to choose which statute you have to break,” he said.

In last year’s election campaign — Micciche defeated a primary challenger by just 72 votes — he said he heard from the voters of his district that they want a full dividend.

Von Imhof and other members of the Senate committee said they feel differently but wanted to advance the debate.

“It was worthy of a yes vote to move it on and keep the conversation going,” said Sen. Click Bishop, R-Fairbanks.

In a separate but related move Friday morning, the committee voted unanimously to transfer $12 billion from the Alaska Permanent Fund’s earnings reserve to its corpus. Doing so would prevent the Legislature from spending that money without voter approval.

Angela Rodell, executive director of the Alaska Permanent Fund Corp., declined to answer questions on the idea Friday afternoon.

By July 1, the earnings reserve is expected to contain about $19 billion, according to figures provided by the nonpartisan Legislative Finance Division. If approved by the full Senate, House and governor, Friday’s amendment would leave $7 billion spendable by the Legislature.

It would also impose a deadline for the Legislature to change the way it handles spending from the Permanent Fund on dividends and public services.

This year’s Senate budget proposal already contains about $4.1 billion in appropriations from the earnings reserve, according to finance committee staff, Legislative Finance Division staff and the text of the Senate’s draft budget.

That leaves $2.9 billion, but according to the Alaska Permanent Fund Corporation’s projections, the fund will earn another $4 billion next year.

That’s enough to cover the scheduled $3 billion budget transfer — called for by last year’s sustainable transfer law — in 2021. It’s also enough to cover an expected $1 billion inflation-proofing payment in the same year.

As long as lawmakers follow the sustainable-transfer law, as long as oil prices don’t fall, and as long as the Permanent Fund’s investments keep earning money as expected, the Legislature need not act.

If one of those things changes, the remaining amount in the earnings reserve acts as a shock absorber — to a point. If the earnings reserve runs out of money, there’s no money to pay a Permanent Fund dividend or transfer to the state treasury for services.

“We could find ourselves in a pinch if we have a downturn in the markets or a downturn in the price of oil,” Micciche said.

Von Imhof believes a decline isn’t likely. “There are tailwinds in the market right now, and the headwinds are small, indicating that we’re going to have at or above returns on inflation for the next year,” she said.

She believes two years is enough time for the Legislature to make the needed change. She supports what she calls “the grand bargain" — agreeing to a full dividend this year in exchange for shifting as much money as possible from the earnings reserve into the protected portion of the Permanent Fund.

In the House, Kreiss-Tomkins had already proposed an idea similar to the one approved by the Senate Finance Committee. House Bill 41 transfers $5.5 billion, not $12 billion, from the earnings reserve to the corpus, but he said there is “definitely” support in the House for the transfer idea “and that amount or more” of transfer.

Speaking to reporters Friday afternoon, Edgmon said he agrees to a point.

“On the surface, I think there’s a lot of support for it,” he said, but with only three weeks remaining in the session, he wonders if lawmakers are willing to shoulder the risk of acting quickly.

“What does it do for cash flow? What does it do relative to any kind of natural disaster that might occur? When you look at a big policy decision like that, you want to look at it from all sort of dimensions,” he said.